The $120 Billion "Wall Street Heist" — How YOU Can Avoid the Fallout, and Capture Dividends of 14.6%

     On March 21, 1924 three Boston businessmen pooled together $50,000 to form a company called the Massachusetts Investor's Trust.  The purpose of the company: to invest in the roaring 1920s stock market boom.

     These three men unwittingly gave birth to a financial revolution.  In fact, in the ensuing 80 years their invention, the mutual fund, has come to dominate the retail investing landscape.

     By 2006, U.S. mutual fund assets had grown from that $50,000 seed invested in a single fund into $8.9 trillion invested across roughly 9,000 different funds.  Over 50 million American households now own mutual funds, making them by far the most popular and common means of participating in the stock market. 

     Mutual funds have taken full advantage of this near monopoly.  Fees charged for managing that $8.9 trillion are significant — the average open-ended mutual fund in fund tracker Morningstar's database charges an expense ratio of 1.34%.  And to make matters worse, many mutual funds also charge hefty front- and back-end loads that can reach as high as 5% of assets.  That's a steep price to pay just for the privilege of purchasing a high-cost mutual fund.

     High Fees Erode Your Portfolio Returns

At first glance, mutual funds' 1.34% average fees might seem like small potatoes.  But that's certainly not the case.      In fact, when you consider that U.S. investors have poured $8.9 trillion into mutual funds, that adds up to a whopping expense of $119.3 billion each and every year.  (That's why I call it "The $120 billion Wall Street Heist.")      To get an idea of what this might mean for your portfolio, take a look at my chart.  It shows the total fees that

     A New Breed of Low-Cost Fund

     Like me, you're probably wondering how to maximize returns in today's choppy markets.  Well, one way is simply to reduce the fees you pay on your investments.  Every dollar you pay to a mutual fund means a dollar less in your pocket.  That's why we — along with millions of other investors — have embraced a revolutionary new asset class that's emerged to challenge the mutual fund industry's dominance.

     These unique financial instruments are essentially passive funds — similar to traditional index funds — that allow investors to purchase a basket of securities in a single transaction.  They're traded on the NYSE, AMEX and Nasdaq just like stocks.  And most importantly, they charge some of the lowest expenses in the industry — an average of just 0.43%.  That's less than one-third of the steep 1.34% fee levied by the typical mutual fund!

     I'm speaking, of course, about exchange-traded funds (ETFs).  Let's take a look at the cost savings that ETFs could help you generate over an extended period of time.

The chart to the right uses the same example, but it also shows the much lower fees you'd end up paying by investing in ETFs.  And keep in mind that this example doesn't include the many other fees levied by some mutual funds, including steep front- and back-end loads.      The story gets even more interesting when you look at total returns.  In the example above, that initial $100K investment would have turned into $2.0 million if invested in mutual funds for 30 years.  By comparison, the same investment in

     What's Behind the Popularity of ETFs?

     Thanks in large part to their low expenses, investors can't get enough of exchange-traded funds.  In the mid-1990s, less than two dozen of these funds were trading on the American Stock Exchange.  Today, more than 600 different ETFs — worth over half a trillion dollars in total market value — trade on all of the major U.S. exchanges.

     In fact, ETFs are the fastest-growing segment of the fund market.  Investors poured some $146 billion into the 291 new ETFs that debuted last year.  That's an average of nearly 25 new exchange-traded funds per month.

     ETFs have grown in popularity thanks to the following important advantages:

     Low Cost — Since ETFs don't require research analysts and other investment specialists to manage them, their fees are very low.  They also don't charge any front- or back-end loads.  As a result, investors get to keep a bigger share of the returns.

     Liquidity — Whereas traditional mutual funds are only priced at the end of the day, ETFs can be bought and sold at any time throughout the trading day.  Many have average daily trading volumes in the hundreds of thousands (and in some cases millions) of shares per day, making them extremely liquid.

     Tax Savings — Most ETF dividends qualify for the lower dividend tax rate of up to 15%, making these funds suitable for a taxable brokerage account.  And some ETFs also offer dividend reinvestment plans, which allow shareholders to reinvest dividends to purchase additional shares.

     Use ETFs to Capture Yields of 14.6%

     When most investors think of ETFs, they think of broad diversification and low expense ratios.  But if you're in search of income, then I've got great news for you — many of these funds also deliver exceptionally high dividend yields.

     In fact, ETFs have come a long way since the first dividend-focused ETF arrived on the scene in November 2003.  Today, yield-hungry investors have scores of these funds to choose from, with some two dozen ETFs offering yields of up to 10% and higher.

     In the most recent issue of my premium newsletter — High-Yield Investing — I highlighted some of the most attractive ETFs on the market, including an ultra-safe utility fund with a 10.3% yield, an international fund paying 8.8%, and a diversified real estate fund with dividends of 14.6%, among many others.

     If you'd like to learn the names of these ETFs — plus receive a steady stream of stocks, trusts, preferreds and other investing ideas with abnormally high yields each and every month — then I'd like to extend you a personal invitation to try my premium income investing newsletter . . . High-Yield Investing.  Visit this link to learn more.

     Thanks for joining me on my search for today's highest-yielding securities!

— Carla Pasternak
Co-Editor
Global Dividend Opportunities